This guy loved the stock when it was at $30 and now that it is at $3 and change he wants to count the pension obligations as a long term liability to justify saying teh stock is expensive! Give me a break. A pension obligation is a business expense not a liability unless they are going out of business.
The analysts just don't know how auto's are going to impact advertisers yet and they don't know where the revenue will come from to potentially replace that revenue stream. There have been other major revenue losses throughout current history; cigarettes and alcohol for example were huge losses that were replaced.
As the economy bottoms and turns back upward there are a lot of companies that are going to have to rebuild their brands and their corporate images. That is done through advertising my friends and CBS has outdoor, local broadcasting and Internet. As the newspapers continue to die out these medium will only grow in importance.
They have the cash on hand, the cashflow and the available credit line to make it through this difficult time. This stock is going to be a real winner in 3 to 5 years for anyone that buys now. This is the kind of situation that creates wealth.
Here are the highlights. When he talks about CBS being expensive on an EV/EBITDA Basis he is including pension obligations. A first year finance student knows that you don't include that in long term debt. He goes on to say that the credit rating is at risk. Dude, they have cash, cashflow and time. I guess maybe if everything went to crap they would be in trouble but then would it really matter anyway? Personally I like the Caris analyst. He said the stock was over valued at $30 and never put a buy rating on the company until he thought all the bad news was priced in to the name. The rest of these tools had a buy rating on CBS all the way down. I will go with the guy that has been right all along.
Equity Concerns Extend Beyond the Cycle
Downgrade to Sell reflects lower advertising estimates through 2010 We expect lasting changes in demand for traditional advertising resulting from current cyclical weakness. Our updated estimates reflect a more conservative
outlook through 2010. Ad buyers are looking for higher return on their marketing investments. Given a structural reduction in demand (consolidations, liquidations)we believe a significant portion of these changes will likely be permanent.
Simply looking at P/E underestimates financial risk
While P/E looks attractive relative to peers (8.0x vs 10.0x for the industry), it assumes credit can be maintained at existing rates. CBS is more expensive on an EV/EBITDA basis, particularly when including “other” liabilities for all media
conglomerates (8.2x vs 6.6x for the industry). On a DCF basis, we estimate shares are priced for a high rate long-term growth when accounting for all liabilities, which we consider unlikely.
Credit rating risk adds to near-term concerns While CBS seeks to protect its investment grade credit status, S&P has indicated that it could downgrade its BBB rating should the company’s adjusted leverage ratio move above 4.0x for a prolonged period. Our revised EBITDA estimates reflect an adjusted calculation >4.0x for the balance of the year.
Valuation – Lowering P/E, DCF-based target to $3.80 from $5.50 We have lowered our earnings and cash flow estimates and raised our WACC to reflect higher expected debt costs. Our target is net of a $0.20 annual dividend.
Good call I read the report. the guy doesn't understand the breakdown between outdoor margins, cbs margins and showtime margins. Advertising 101: this stuff gets cut early in a recession (especially a fast one) it comes back earlier as well. you can't really stop it for too long. This stock is worth about $18 in a couple of years.
so good luck getting it under a buck
Maybe so, but most of the CBS properties are headed toward negative cash flow this year. The local advertising markets are so bad you have CBS major market TV and radio stations off 40-50% from last years dismal numbers.
That would be fine if they had low debt and some growth prospects, but they miss on both accounts. The pension liability is just another financial strain on the company.
If the ad market recovers soon, you are correct that this is a big opportunity, but at the moment all of the data suggest that this is a prolonged retraction in the ad market and CBS is one of the worst positioned companies.
I am not hearing ad numbers nearly as negative as you are describing and theoutdoor business is really holding in strong. I totally disagree on teh negative cashflow and whoever is telling you that if feeding you a bunch of lies. Maybe you should ask the how many shares they are short.
Also this business about the local TV stations under secular pressure is hogwash. With newspapers biting the dust left and right that ad spend has to go somewhere. There may be some lag do to the struggles in the auto industry but there is someone out there, probably a foreign competitor that is going to want that market share. Not to mention that the financial institutions are going to have to get to work on rebuilding their brands.
Cashflow is not negative; it is definitely down, but not negative.
Oh by the way, I am not short the stock, but wish I had as when Sumner was dumping it there were all the signs that it was headed under $1.00.
They won't be alone there as Tribune has already declared Bankruptsy and other major station groups like Belo (BLC) are already trading sub $1.00.